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Tuesday, December 4, 2012

5 facts about our pathological wealth distribution

Most people associate inequality with the income gap. As distorted
as the distribution of income may be, our wealth distribution is even
more extreme. Americans are beginning to realize that years of
preferential tax treatment for the rich, under the guise of "supply-side
job creation" nonsense, have bloated the fortunes of the super-rich to a
level that would make Rockefeller and Carnegie envious.

1. We’re close to being the most unequal country in the world.

Among countries with at least a quarter-million adults, only Russia,
Ukraine, and Lebanon are more unequal, according to the most recent figures from Credit Suisse Research.

An earlier report by
the same research team had indicated that Denmark and Switzerland were
more unequal than the United States. While Switzerland is still high in
the new data listing, ranking 18th, Denmark is actually rather equal
relative to other countries, and received its dubious earlier position
due to its own accurate reporting of household debt, as will be noted in
Fact 5 below.

2. Wealth accumulation has been rigged for the rich.

The richest quintile of Americans owns 93% of non-home wealth. For Americans with incomes over $10 million, nearly half of their income comes from capital gains and dividends, on most of which they pay only a 15% tax. From 2002 to 2007, two-thirds of all income went to the richest 1%. Then, in the first year after the recession, a startling 93% of all new income went to the richest 1%.

The imaginary 'work' of financial gain gets taxed at a much lower
rate than real work. Through the years, as the rich have fattened up on
stocks and other financial assets, the stock market has grown three times faster than the GDP. Yet American workers have not benefited from their own productivity. Their wages have flatlined while the fruits of their labor have gone to investors.

3. As tax rates have gone down, income for the rich has gone up.

A Business Insider chart depicts
the remarkable - yet reasonable - negative correlation between tax
rates and the wealth of the super-rich. Over the past hundred years,
every time tax rates have been decreased, the income percentage of the
richest .01% has increased, and vice versa.

Othersources confirm
that changes in the tax rate have little to do with economic growth,
and that the top tax rate can - and should - be much higher, up to 83%.

The Reagan-era myth of "higher taxes, less revenue" has been
debunked. It's enough to convince any thinking American outside of
Congress that our budget problems are rooted in an extraordinary degree
of tax avoidance at the top.

4. “We should all cheer for the stock market” is a big scam.

The mainstream media would have us believe that the whole country
depends on a rising stock market. But the lowest-earning three-fifths of
Americans—60% of the population—own just .2% (one-fifth of one percent) of all wealth outside the home.

The Heritage Foundation and the American Enterprise Institute claim that wealth inequality has remained steady over the past century, even in the last 30 years. Both organizations cite a paper by Kopczuk and Saez,
which shows that the share of wealth owned by the top 1% has decreased
from the early 1900s to the early 2000s, possibly because the
"democratization of stock ownership...now spreads stock market gains and
losses much more widely than in the past."

While it's true that the percentages of net worth and financial wealth for the top 1% barely budged from 1983 to 2007, the percentages for the rest of the richest 5% increased by almost 20%. And the percentages for the poorest 80% of the population DECREASED by almost 20%.

In other words, the share of wealth owned by the top 1% leveled off
because the "democratization of stock ownership" spread the wealth among
just 5% of the population, those earning an average of $500,000 per
year. A few people—5 out of 100—got very rich, but everyone else lost
ground.

5. Debt has masked wealth inequality for 30 years

The authors of the Global Wealth Report state:
"Rising household debt...began around 1975. Before this date, the ratio
of household debt to annual disposable income within countries remained
fairly stable over time and rarely rose above 75%."

Today, Americans
are burdened with over $11 trillion in
consumer debt, including mortgages, student loans, and credit card
liabilities. As the very rich have accumulated income and wealth, the
middle class has kept up appearances by taking out loans.

However, that's only half the story. Private debt appears to be more
manageable when public debt is low. Denmark has the highest household
debt to wealth ratio in the world, but its government debt amounts to
just 3% of the financial wealth of Danish households. The U.S. is at
32%. And our government debt as a percentage of GDP is 103%, one of the highest percentages in the world.

Conclusion: Where is all the wealth coming from?

According to the authors of the Global Wealth Report,
the world's wealth has doubled in ten years, from $113 trillion to $223
trillion, and is expected to reach $330 trillion by 2017.

We need to add a 4th category: the magical creation of wealth by the financial industry.

A THOUGHTFUL READER COMMENT

Richard CottinghamDecember 03, 2012 10:32pm

How can anyone read this and believe that the recovery will ever
reach middle to low income Americans. Why would corporations want to
hire American workers when they are making record profits by doing
exactly the opposite? Why would stokholders of those corporations want
to see American jobs return to America when they are getting wealthy
from the profits of corporations that outsource jobs?

Many people wondered why in the world Billionaires spent so much
money on supporting Romney and Ryan. Individuals like the Koch Brothers
and Adelson spent far more than President Obama's tax plan will cost
them if it ever happens. They did it because they knew Ryan and Romney
would do nothing to pressure corporations to share the wealth. They
feared that the only way the President could get reelected was to
promise to tax the rich and to imply a redistribution of wealth
downward.

Get used to it folks. The economy as you see it today is all the
recovery most of us will ever see. Americans still make enough to set
spending records on Black Friday and and that is good enough for
corporations right now. As the ability to consume in America shrinks
(as it is doing) the ability to consume is growing in China and India
and other third world countries.

When those countries develop middle classes that begin to demand a
voice in their governments, fair taxation, fair treatment for labor,
fair pay and fair wealth distribution, jobs will begin to return to
America. By then Americans will be willing to work for slave wages like
the Chinese and Indians are doing now.

Unless Americans force drastic changes in the relationship between
government and corporations; unless Americans force drastic changes the
the relationship between government and the wealthy elite; and unless
Americans force drastic changes in the ideology driving government
actions the recovery is over.

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